The Match Out: Early optimism fades, ASX flat as Hardies beat

• The ASX 200 finished up +2pts/ +0.03% at 7311
• The Healthcare sector was best on ground (+0.59%) while IT (+0.21%) & Energy (+0.16%) were also strong.
• Staples (-0.30%) and Real-Estate (-0.19%) the weakest links.
• We discussed the Staples sector in this morning’s note: What Matters Today: 3 stocks/sectors that look vulnerable as bond yields drift
• James Hardie (ASX: JHX) +14.38% stormed higher on a Q1 result that smashed expectations as better margins drove a big (~16%) beat on earnings – more on that below.
• Myer (ASX: MYR) -14.08% said profit for FY23 would be $69-73m, strong growth on the prior year but a ~15% miss to expectations. They also flagged consumer headwinds & higher inventory levels at year-end.
• The numbers weighed on Premier Investments (PMV), falling -3.94%, which owns around a quarter of Myer.
• Charter Hall Long WALE REIT (ASX: CLW) –5.71% fell after downgrading FY24 earnings on higher debt costs.
• Commonwealth Bank (ASX: CBA) +0.35% ticked up ahead of FY23 results tomorrow, look for $10.1bn profit, EPS of $5.88 & DPS of $4.33.
• Coronado (ASX: CRN) -11.55% looks like they’re conserving cash for an acquisition despite an underwhelming result today.
• Reece (ASX: REH) +3.93% enjoyed the positive readthrough from JHX.
• Iron Ore was marginally higher in Asia supporting Fortescue (FMG) +0.43% but not RIO -0.42%.
• Gold was flat in Asia ~US$1933
• Asian stocks were down Hong Kong off -1.95%, Japan flat while China fell -0.27%
• US Futures are all down, around -0.30%
• Commonwealth Bank (CBA) headlines reporting tomorrow, while Suncorp (SUN), Dexus (DXS) & Computershare (CPU) are also out with numbers. Download the Market Matters Reporting Calendar Here
• Stocks we own in the International Equities Portfolio with results this week: Barrick Gold (GOLD US), Alibaba (BABA US), The Trade Desk (TTD US), Glencore (GLEN LN) & Yeti Holdings (YETI US).

ASX 200 Chart - Intraday

ASX 200 Chart - Daily

Portfolio Performance For July & insights into reporting

Portfolio Managers James Gerrish & Harry Watt cover the performance of the ‘Website’ portfolios for Market Matters and look ahead to FY23 reporting. Monthly performance reports for Market Matters Invest, which facilitates investment into 3 portfolios will be out later in the week, noting that performance is aligned but will not be identical (July was slightly better across the board for the invest portfolios).

James Hardie (ASX: JHX) $46.62

JHX +14.38%: Produced a material beat versus expectations at their 1Q24 result today exposing the many drivers they have across their business to cope with operational challenges. While top-line sales were ‘only’ ~4% ahead at the group level, cost management was impressive and that drove a big beat on margins and thus quarterly earnings. To put this achievement into context, their Nth American business did >30% margins on volumes that were down ~9% which provides a great read-through for when utilisation rates go up again. They guided to Q2 profit of $170-190m versus the consensus of $156m, which is a 15% upgrade, however, we would caution that this is a quarterly update, and while it’s impressive, they have not provided guidance past Q2.

• We sold JHX too early (clearly) ~$40, but we are unlikely to chase strength.

Charter Hall Long WALE REIT (ASX: CLW) $3.80

CLW -5.71%: Was a very interesting result today with worthwhile takeaways for our thinking on the broader property sector. While we have not had any interest in owning CLW for some time, given we viewed it as akin to buying a longer-dated bond that would struggle in a rising rate environment, after today’s move, it has piqued our interest. The one-liner is that higher debt costs drive a miss in earnings guidance for FY24, which was ~8% below consensus while look-through gearing which takes into consideration debt on properties at 40.1% has ticked up. The cost to service their debt increased and that’s the main issue that will hurt earnings. As a reminder, CLW has long leases (WALE 11.2 years) to safe tenants (mainly Government) and is fairly boring in nature, but small movements impact leveraged positions which CLW is, and that leverage drove a ~10% decline in NTA.

• Not one for right now, but worth keeping a handle on CLW we think.

Coronado Global Resources (ASX: CRN) $$1.455

CRN -11.55%: the US & Australian coal miner was out with first-half numbers today with a low-quality beat treated harshly by investors. They missed on Revenue ($US1.49b vs $US1.54b expected) and EBITDA ($US352m vs $US372m expected) though NPAT of $US199m was in line with expectations with the uplift coming from a lower tax rate. The company maintained guidance for production and costs, noting an improved operational outcome will be required to hit targets in the second half. The company elected to pay just US0.5cps as a dividend for the first half, the minimum required as per the updated dividend policy announced in April last year, well below the US3cps expected by the market. This follows rumours that Coronado is one of a handful of companies in the running to buy BHP’s coal assets, a transaction potentially worth $US5b. It would make a lot of sense to save your pennies if you were keen on that deal!

Commonwealth Bank (ASX: CBA) $102.21

CBA +0.35%: Out with FY23 results tomorrow morning that will be important for CBA and the banking sector more broadly. Citi (Brendan Sproules) is a bear on margins and therefore earnings, expecting Cash NPAT 9,927m, Basic Cash EPS $5.88, DPS $4.30, with a sharp contraction in 4Q NIM down to 1.99% (vs consensus ~2.05%). UBS (John Storey) on the other hand thinks NIMs will be stronger than consensus tipping a 2-6bps beat putting them 4-4.5% ahead of consensus on cash EPS. We think UBS will be closer driven by reduced competition, implying CBA is a good chance of beating.

Broker Moves

• Pilbara Minerals Raised to Overweight at JPMorgan; PT A$6
• PEXA Group Rated New Buy at Jefferies; PT A$15.20

Major Movers Today

Have a great night

The Market Matters Team

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